SHANGHAI / DETROIT (Reuters) — The
world's biggest auto market will likely sustain the momentum it
regained in 2013, helped by an anticipated array of economic
stimulus measures and robust demand for cars in smaller cities of
China's interior regions, according to industry executives and
analysts.

The new year should mark a second year of double-digit growth for
China after sales expansion rates slumped in 2011 and 2012 to 2.45
percent and 4.33 percent, respectively. In the previous 10 years,
auto demand in China often surged 30 to 40 percent annually.

Those hyper growth days are over, but last year the Chinese market
rebounded convincingly. In 2013, sales in China rose 13.9 percent to
21.98 million vehicles, according to the China Association of
Automobile Manufacturers (CAAM).

"We believe clearly for anybody working in the automobile industry,
if there's one place to be, it's China," Hubertus Troska, head of
Daimler AG's Greater China operations that include Mercedes-Benz,
told reporters in Beijing on Thursday, describing growth in 2013 as
being quite strong.

"If things continue well, there's a good chance that the automobile
market in China will grow again double-digit this year," said Troska,
who is also a member of Daimler's management board.

The revived strength of China's auto market, which will be a popular
topic of conversation at this week's Detroit auto show, is a relief
to global automakers whose business is still impaired by sluggish
demand in Europe and an anticipated slowdown in growth in the United
States this year.

Volkswagen AG <VOWG_p.DE>, for example, had forecast vehicle demand
in China to grow at annual rates of between 5 and 7 percent over the
next five years. Jochem Heizmann, head of Volkswagen's China
operations, said he believes the German automaker might have been
too conservative.

As demand appears poised to expand much faster, "we could sell more
(cars) if we have more capacity," Heizmann told reporters in
Guangzhou in late November.

CAAM said China's overall demand for automobiles will likely grow 8
to 10 percent this year.

WHAT'S DRIVING DEMAND

The main support for auto sales, experts say, will likely come from
continued strong economic growth in China's interior provinces, as
opposed to the previous decade and a half when the bulk of growth
was generated in the country's coastal provinces.

Another supportive factor is a series of fresh stimulus measures
seen likely to be implemented this year by China's new leadership
under President Xi Jinping.

Those factors, combined with steady personal income growth backed up
by falling vehicle prices, will help ensure a second straight year
of double-digit growth, according to Yale Zhang, head of Automotive
Foresight.

"The market is going to grow most definitely more than 10 percent
again this year," he said.

The Chinese market should be able to comfortably overcome
demand-sapping pressures such as auto sales restrictions now being
implemented in a growing number of big cities, Zhang and others
said. Those sales caps in cities including Shanghai and Beijing are
aimed at cutting air pollution and congestion.

Among global automakers, Volkswagen, General Motors Co <GM.N> and
Ford Motor Co <F.N> are likely to benefit most from a second year of
relatively strong growth. Volkswagen, GM and Ford market some of
China's best-selling cars, such as the Volkswagen Lavida, the Buick
Excelle, and the Ford Focus.

The future for Japanese automakers in China, by contrast, remains
clouded. Japanese brands led by Nissan Motor Co Ltd <7201.T>, Toyota
Motor Corp <7203.T> and Honda Motor Co Ltd <7267.T> are seen
unlikely to benefit fully from China's renewed strength because of
lingering political tensions between Beijing and Tokyo that have
fanned anti-Japan sentiment and depressed their sales in China.

Sales on a month-by-month basis recovered to pre-crisis levels for
many Japanese brands toward the end of last year. Toyota for
instance forecast 20 percent growth in China sales to about 1.1
million vehicles this year, compared with year-on-year growth of 9
percent in 2013.

Still, some industry executives and analysts doubt a convincing
reversal of fortunes for Japanese automakers. The main source of
worry comes from Japanese Prime Minister Shinzo Abe's visit last
month to the Yasukuni war shrine that is seen by critics as a symbol
of Japan's wartime aggression, which infuriated China and South
Korea and prompted concern from the United States about
deteriorating ties between the North Asian neighbors.

"The political tension will likely continue," said He Caiman, deputy
secretary general of the Guangzhou Association of Automobile
Manufacturers, citing Abe's Yasukuni visit. "For Japanese
automakers, this is the biggest risk to their growth, and something
out of anyone's control."

Already, the collective Japanese share of China's passenger car
market fell to 16.6 percent in 2013 from 23 percent in 2011,
according to LMC Automotive, following the flare-up of anti-Japanese
sentiment triggered by the territorial dispute in late 2012. That
year, Japan's share fell to 19.2 percent.

To reverse the trend, Japanese brands are gearing up for a big new
product blitz this year after spending much of the past year and
half on the sidelines.

Nissan, for instance, plans to launch production of upscale Infiniti
brand cars in China and launch the redesigned X-Trail SUV this year
while also adding new models under the Venucia brand it jointly runs
with Dongfeng Motor Group Co Ltd <0489.HK>. Toyota, meanwhile, late
last year launched the redesigned Rav4 SUV, as well as the
redesigned Yaris and Vios — a trio of key strategic cars aimed at
entry-level buyers, a group that is multiplying in China.

"This is our year to jump forward. Our biggest fear is China's
retaliation in response to Abe's recent visit to Yasukuni," a senior
Beijing-based Toyota sales executive said. "It's usually tit for
tat."

Honda, meanwhile, is expected to launch the significantly redesigned
Fit this year, along with other new models, which a Honda official
said are likely to include a compact SUV and a full-size minivan.

"Japanese brands are going all-out to appeal to almost every segment
of the Chinese consumer diasporas," said Namrita Chow, a
Shanghai-based analyst for IHS Automotive.